Wednesday, 17 May 2017
The FERI Cognitive Finance Institute have a sense of humour.
I’m reading this work of theirs. I may do a post on it, but meanwhile I’m impressed by their sense of humour. The following two passages illustrate that.
When Lehman Brothers collapsed and subsequently several other banks in several countries in the US and Europe veered on the brink of bankruptcy, it was apparent that events in the banking system exert a major impact on the rest of the eco- nomy, including the future path of economic growth. However, it is less well known that when journalists interviewed leading experts in ‘economics’ and ‘finance’, namely professors of economics and finance at major universities, such as Harvard, Oxford or MIT, their honest response to the questions from the journalist should have been: ‘I am sorry, but I cannot comment on the banking crisis.’ An astonished journalist would have inquired why this was not possible. And an honest academic would have responded: ‘The economic models and theories I use in my work do not include any banks. None of the leading macroeconomic models and theories include any banks. We simply do not analyse banks at all.’
The futility of such a narrow inflation targeting can be illustrated by the European Central Bank’s official claim that its monetary policy during its first decade of operation was not interested in and did not monitor bank credit, economic growth nor even inflation in individual Eurozone countries, but was solely focused on the aggregate Eurozone inflation target of 2%. When asked at a public meeting whether the ECB would thus consider its monetary policy successful if half of the Eurozone countries experienced 52% inflation (a disaster), while the other half experienced 50% deflation (an even bigger disaster), resulting in an aggregate inflation rate of 2%, the ECB’s spokesperson responded with a clear ‘Yes’.